An agreement with GE-AerCap would increase the pressure on Boeing and Airbus

The Wall Street Journal reported on Sunday that AerCap was in negotiations to combine with Gecas in a deal worth more than $ 30 billion.

The creation of a new giant industry figure to do two things. This could mean that airlines get better deals on airplanes, as a large leasing company can get lower prices from Airbus and Boeing. It could also intensify heated competition between landlords and aircraft manufacturers that try to secure operator orders while looking beyond the retraction in travel driven by the pandemic that left thousands of planes parked.

“It will be a buyer’s market for airlines,” said Eric Bernardini, managing director of AlixPartners LLC, a consulting firm. “Lessors are going to compete with aircraft manufacturers to place aircraft.”

Boeing declined to comment. The aircraft manufacturer said earlier that it works closely with landlords, which, according to company executives, helped the industry by moving planes to meet demand. Airbus said it maintains a good relationship with AerCap and Gecas and declined to comment on any potential transactions.

The aircraft leasing industry developed in the 1970s, initially serving the weakest airlines, which did not have the money to buy planes themselves. Lessors place orders in large quantities and guarantee cheaper financing, passing on part of the savings to airlines. Operators rent planes, usually for five to 12 years, instead of buying them immediately, keeping debts off their balance sheets.

The business has now become mainstream. Delta Airlines Inc.,

JetBlue Airways Corp.

and Southwest Airlines Co.

they are among the operators that sell planes they have ordered to leasing companies and rent them back. This relationship has made major aircraft leasing companies a vital source of money for airlines in the past and tumultuous year. Jet sales raised billions of dollars, with the cash increase coming from lessors agreeing to postpone the lease of existing planes.

“I believe that without us and the leasing community, the aviation industry would be in a much worse position than it is today,” John Plueger, chief executive of Air Lease Corp.

, a major aircraft lessor, said in an investor call last week,

With more than 900 aircraft owned or managed by other investors, Gecas is surpassed only by AerCap in fleet size. It leases passenger aircraft manufactured by Boeing and Airbus – many with engines manufactured by GE – as well as regional jets and cargo planes to customers ranging from major airlines to startups. Gecas had $ 35.9 billion in assets as of December 31.

AerCap has a market value of $ 7.5 billion and about 1,050 owned or managed aircraft, as well as almost 300 orders. The company has experience in closing deals, paying about $ 7.6 billion in 2014 to buy International Lease Finance Corp. from American International Group Inc.

Still, the aircraft leasing market remains fragmented, probably lessening the chance of an antitrust challenge for a combination. The merger of AerCap and Gecas would have about 7% of the global aircraft fleet and 4% of orders from Airbus and Boeing, according to bank Jefferies.

Major leasing companies have focused their purchases on the most popular planes, including the narrowest Airbus A320neo and Boeing 737 MAX jets most commonly used on domestic and shorter routes. Its wide-body jet fleets used on international routes consist mainly of Airbus A350s and Boeing 787 Dreamliners. This concentration allows lessors to transfer planes between customers if demand falls in a region, even if they resume if an operator has problems.

Leasing companies generally do not want to buy the first planes on the production line, which may have teething problems, as well as the latter, which often have difficulty maintaining their value.

The shares of aircraft leasing companies fell along with much of the market in the early days of the pandemic, when airlines stopped planes and sought discounts on rent. But many of the major landlord’s inventories have recovered since then, as blockages have eased and prospects for travel have started to improve.

However, AerCap and Gecas have made reductions in the value of some remaining older aircraft.

Write to Doug Cameron at [email protected]